Noble Corp.'s long-anticipated “bon voyage” to its lower tier commodity assets is the latest sign of a bifurcating offshore rig market.

The company announced in late September that its board had approved a dropdown of legacy equipment—including five drill ships, three semisubmersibles, 34 jackups, two submersibles, and one floating production, storage and offloading (FPSO) unit—into a company to be spun off to shareholders in a tax-free deal, possibly as early as mid-2014.

The deal may incorporate an initial public offering (IPO) that would include 20% of shares in the new entity.

Noble will retain 20 floaters and 15 jackups, mostly new or higher-specification equipment adapted for deepwater and ultradeepwater markets or harsh-environment applications for jackups. The company will claim almost 80% of its future revenues and margins from newer deepwater

and ultra-deepwater equipment following the split, which it believes will sweeten investment prospects for shareholders who have been frustrated by its stock performance vis-à-vis its offshore peers.

The move reflects the unfolding bifurcation in the offshore fleet, where strong customer interest is gravitating to higher specification deepwater and ultra-deepwater equipment.

Noble's split had been discussed for more than a year and appeared to be contingent upon a favorable tax ruling from the US Internal Revenue Service, which Noble anticipates receiving “soon.” The deal also is subject to shareholder approval. Should the deal move forward, the new company would file for an IPO late in 2013 or early 2014.

Proceeds from the IPO would be directed to any debt the new company incurred as part of the spinoff from Noble, while Noble will apply proceeds from the sale to its own debt reduction.

Offshore drillers have lost investor sparkle as day-rate softness began seeping through fifth-generation floaters in third-quarter 2013, leading to concerns that offshore rates had peaked for this cycle. Additionally, rig rates for higher specification ultra-deep-water units have flattened, accentuating investment community worries that the steady arrival of newbuild higher specification equipment into the market through 2014 would create excess capacity, at least short term.

Meanwhile, orders for new rigs are approaching six dozen units year-to-date, exceeding the total orders for 2012. However, most 2013 orders have been for jackup units as opposed to floaters.

The Noble split should produce a standard specification company that generates $300 million a year and a possible dividend, according to Ryan Fitzgibbon, an analyst with Global Hunter Securities LLC. The new Noble could generate close to $1.3 billion in free cash flow in 2015, “affording it the ability to pay a meaningful dividend given the lack of additional newbuild capex commitments,” Fitzgibbon said in a research report on the deal.

—Richard Mason

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